Vail Resorts: An Expensive Mountain to Climb

Vail Resorts (NYSE: MTN  ) has performed well this year, but is it still a buy? If so, is it the best investment in its peer group? Unlike Vail Resorts, Marriott (NASDAQ: MAR  ) doesn't rely heavily on one activity (skiing). And unlike Hyatt (NYSE: H  ) , it's broadly diversified with its namesake brand, Gaylord Hotels (its newest brand), Fairfield Inn & Suites, Residence Inn, TownePlace, The Ritz-Carlton, and Bulgari Hotels & Resorts. This allows Marriott to target a broad range of consumers at varying price points. We'll see if that might lead to a better investment when it comes to hotels and resorts. 

Hot fun in the summertime
Looking at Vail Resorts' first-quarter results isn't often the best way to gauge the company's potential. After all, this quarter includes summer performance instead of ski-season performance. This lends to lower revenue and losses. However, if you look way down the road, then another growth opportunity for Vail Resorts might exist in the summertime.

I have visited Vail in the summer, and it's one of the best summer vacations I have experienced. You can go for a walk through Vail Village (no cars allowed) to dine, shop, or people-watch; take a peaceful stroll on a paved path along the river; hike a mountain; enjoy an outdoor concert; eat at a restaurant atop Vail Mountain; check out Lionshead; take a day trip to Breckenridge; and much more.

This might sound like an advertisement for Vail, but that's not the case. I have no position on the company. I simply feel as though, based on personal experiences, Vail Resorts has growth potential during the summer months if it can continue to come up with ways to entertain visitors during this time of year. All it would take is a little effective marketing.

While Vail Resorts still delivered losses in recent first quarters, net revenue in the most recent first quarter jumped 10.4% year over year, primarily thanks to more summer visitors. That's a big step in the right direction. 

The summer season clearly has future potential written all over it. In the meantime, Vail Resorts offers more growth potential in other areas.

New and improved
Vail Resorts is seeing its strongest growth in its Colorado and Tahoe markets. It has also reported seeing strong results for its first year in Utah, at Canyons in Park City. Urban Ski Markets, Minneapolis (Afton Alps), and Michigan (Mt. Brighton) have been upgraded in regard to snow-making and lifts, which should improve the quality of visitor experiences and increase the odds of repeat business. Word of mouth may also lead to new business. Overall, through Dec. 7, season passes were up 13% in unit terms, as well as 16% in terms of sales.

One concern
If you want to invest in Vail Resorts, then you will have to pay a premium. The company is currently trading at 42 times forward earnings. Therefore, if there are any hiccups on the growth side, investors will head for the quickest downhill slope for a fast exit.

Vail Resorts does yield 1.10%, which should at least help limit the pain a little if a sell-off were to occur. The company generated $222.42 million in operating cash flow over the past year, so the dividend should remain intact, and this should allow Vail Resorts to reinvest in its business.

Hyatt has a somewhat similar situation. Hyatt is also trading at a high multiple -- 41 times forward earnings. However, you should only pay a premium if a company shows consistent top-line growth.

MTN Revenue (TTM) Chart

MTN Revenue (TTM) data by YCharts

Both companies have shown decent momentum lately, yet neither of them are growing as fast as Marriott. Furthermore, Marriott is trading at just 20 times forward earnings, making it a clear bargain compared to Vail Resorts and Hyatt.

As if that's not enough of a selling point to call Marriott best-of-breed here, then consider that Marriott generated $986 million in operating cash flow over the past year and it currently yields 1.40%.

Checking out of the resort
Vail Resorts offers significant growth potential, but the combination of being highly reliant on discretionary income and trading at a high multiple doesn't lead to top-notch value. Vail Resorts is now a high-risk/high-reward investment. Marriott's more consistent top-line growth, superior cash flow generation, decent yield, broad-brand diversification, and valuation should make it a bit more appealing to investors. However, Marriott's also highly reliant on discretionary income, which leads to a lack of resiliency. 

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